"Well, I wrote a whole chapter in my first book, Other People's Money, right after I left Goldman Sachs, predicting what would happen if you don't regulate credit derivatives
Aside from that, between June 2006 and June 2007, foreclosures had increased by more than 50 percent. This was public information leading up to the crisis. Paulson, of all people, having just jumped into his position from having been the CEO of Goldman Sachs should have known that when foreclosures and defaults rise to that kind of extent, it means that securities created on the notion that this wouldn't happen were going to be doomed, and therefore all trading and borrowing that used those securities, now called toxic assets, as collateral were going to hit a tremendous speed bump.
So, either he was being a complete idiot and learned nothing during the 12 years he ran Goldman, or ......
Only $1.4 trillion worth of subprime loans were extended between 2002 and 2007. On the back of those loans, the industry created $14 trillion worth of various types of assets and borrowed up to 10 times that amount using those new assets as collateral........
For the money spent on subsidizing the industry, the government could have bought out every single outstanding mortgage in the country. Plus, every student loan and everyone's health insurance. And on top of that, still have trillions of dollars left over........
Someone has to track the government bailout checkbook! Here it is: http://www.nomiprins.com/bailout.html
The Fed didn't have to allow Goldman and Morgan Stanley to become bank holding companies in a Sunday night fear feast on Sept. 21, 2008, and thereby solidifying the ability of those two firms to access federal subsidies and FDIC backing for new debt they issued.
The Fed definitely didn't have to allow, or better yet, encourage Bank of America to acquire Merrill Lynch, JPM Chase to acquire Bear Stearns and Washington Mutual, or Wells Fargo to merge with Wachovia. All of these megamergers are resulting in greater risk-taking than before the crisis.
What the Fed should have done, most importantly, is give the same, or greater, subsidies to individual or small businesses facing their own credit problems or home foreclosures......
Paul Volcker, is the one guy on the Obama team calling for a separation of commercial and investment banks and rightly warning that if we don't do that, we have set ourselves up for a greater fall.....
A bipartisan Congress, Republican treasury secretary and Democratic president -- FDR, established the Glass-Steagall Act. It was enacted to segment the financial industry into two parts -- commercial banks dealing with the public, and thus taking less risk, and receiving more government backing, and investment banks dealing with speculations and not getting government capital for their self-made problems.
In 1999, a bipartisan Congress repealed Glass-Steagall in a 90-8 vote ([Arizona's Sen.] John McCain didn't vote). Two senators in particular, Byron Dorgan, D-N.D., and the late Paul Wellstone, D-Minn., warned of the impending cost to the American people of recombining the banking system and allowing any commercial bank to merge with any investment bank and insurance company. They were right.....
As banks merged with a vengeance across once-defined lines, they needed more and more capital to buy each other and in order to compete with each other -- it didn't matter how they got it or concocted it in shady assets. The result was poorer reporting standards on risk, greater speculative appetite and a multitrillion bailout.
Yet, to this day, there are very few voices in Washington talking about bringing back Glass-Steagall. Sure, they worry about banks being too big to fail or "systemically important" as Treasury Secretary Geithner and Federal Reserve Chairman Bernanke put it.
Still, is anyone mentioning the most logical way to take care of the pending disaster: chopping them up, making them smaller, more transparent and more easily backable and regulatable? No. It boggles the mind.
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